EP 179: Joško Bobanović | Why Venture Capital Fights Human Instinct

What happens when the instinct to help a struggling company is exactly what prevents the strongest companies from succeeding? Venture capital forces investors to make decisions that can feel deeply uncomfortable: stop rescuing the weakest, concentrate scarce capital behind the most promising, and accept that most investments will fail.

Deep tech intensifies this conflict. Investors must commit capital while the technology remains unproven, customers are still uncertain and the eventual exit may be more than a decade away. The wrong team, an inflated valuation or a fund timeline that does not fit the technology can destroy an otherwise promising company.

Joško Bobanović, Partner at Sofinnova, explains how experienced investors make these decisions without ever receiving complete information. He reveals why people matter more than patents, why founders must start selling before they have a product and why investors should support management from the back seat—without trying to drive the company themselves.

Beginning with a destructive storm Joško predicted but could not prevent, the conversation develops into a practical guide to risk, patience and capital allocation. It also confronts Europe’s central deep-tech challenge: the continent produces exceptional science, but without sufficient scale-up capital, specialist investors and corporate buyers, much of the value will be created elsewhere.

WHAT LISTENERS CAN EXPECT TO LEARN

• Why successful venture investing requires resisting the instinct to rescue struggling portfolio companies
• How investors make consequential decisions with partial information—and recognize when it is time to stop researching
• Why the team, storytelling and customer conversations can matter more than exceptional technology alone
• How inflated valuations, ten-year fund structures and limited exit opportunities affect deep-tech companies
• What Europe must change to scale its best companies instead of watching them industrialize elsewhere

BEST QUOTES

• (00:20:04) “The nature of venture capital decisions is very counter to human instincts.” — Joško Bobanović
• (00:41:05) “Investment in a startup is like a marriage that is predetermined with a divorce at some point in time in the future.” — Joško Bobanović
• (00:54:25) “Nothing validates what you’re doing better than cash.” — Joško Bobanović
• (00:57:35) “A B team will probably destroy exceptional technology, but an A team will make a success even of average technology.” — Joško Bobanović
• (01:56:22) “Otherwise we become a museum. And I don’t think we want to be a museum.” — Joško Bobanović

TIMESTAMPS

(00:00:00) Why Venture Capital Fights Human Instinct
(00:03:08) The Storm Joško Predicted but Could Not Stop
(00:09:11) How the Early Internet Changed Access to Opportunity
(00:16:49) If You Do Not Play, You Cannot Win
(00:20:04) Why Investors Must Resist the Rescue Instinct
(00:29:33) Scientists Must Learn to Decide with Partial Information
(00:35:58) Can Founders Make Themselves Replaceable?
(00:41:05) A Marriage with a Predetermined Divorce
(00:47:45) Why Storytelling Is a Critical Deep-Tech Skill
(00:52:03) Start Selling from Day One
(00:57:03) Why Venture Capital Is a People Business
(01:00:11) Investors Belong in the Back Seat
(01:10:50) Better Decisions Require Broader Comparisons
(01:18:00) When a Higher Valuation Becomes Dangerous
(01:27:15) Why Every Venture Investment Needs 10× Potential
(01:37:29) Deep Tech’s Missing Exit Opportunities
(01:45:05) Why VCs See IPOs as a Necessary Evil
(01:52:49) Europe’s Scientific Strength and Scale-Up Weakness
(02:05:01) What Europe Gets Wrong About Failure
(02:13:13) Get Involved Instead of Complaining from the Sidelines

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Transcript

Christian Soschner 0:00

Most of what you have been told about venture capital gets the emotion backwards. The instinct to help the one in trouble, to rescue the weakest, to hold on when things go wrong. That instinct is exactly what loses money in this business. My guest today has spent more than 20 years learning to act against it. He studied as a scientist predicting ocean storms. He watched one of his focuss come through to the meter and he felt the helplessness of knowing the future and being unable to change it. That feeling pushed him into backing companies that try to change the physical world. Industrial biotech, sustainability, deep tech that takes a decade to prove.

SPEAKER_00 0:41

If you have three children, but you have money to uh send to university only one of them, which one will you send?

Christian Soschner 0:49

The answer he gives is uncomfortable and it is the core of how capital really gets allocated. Once you accept it, the whole relationship between money and entrepreneurs looks different.

SPEAKER_00 1:01

Investment in a startup is like a marriage that is predetermined with a divorce.

Christian Soschner 1:06

And he means it. And he has been asked at conferences whether he has marital problems for saying it. Under the joke is a serious point about how partners weather storms together and then part on purpose. And I said IPOs are in the eyes of VCs a necessary And that line stopped the room in China Code. My guest today is Joshko Popanovich, he is partner at Sovinova in Europe. If you build back a fund hard technology, this conversation will change how you think about time, risk, and the people you choose. Let's get into it. Joshko, let's get started.

SPEAKER_00 1:43

Uh welcome. Great to have you on the show. Thank you for having me, and I really appreciate the opportunity to talk a little bit about my uh experience and hopefully uh incentivize someone to start thinking about similar things.

Christian Soschner 1:58

That's a very good idea. I love the preparation with you and uh your inputs and also the research I did. And what interested me especially when preparing for this conversation was uh your exciting path from science, uh studying in Europe and in Canada, then surprisingly to forecasting, and then into venture capital, and from there into backing companies, basically in industrial biotech and sustainability. And underneath that, I think sits um bigger question for me. How does an experienced investor actually think when decisions have to compound over long cycles in the physical world? And I think it would be a good starting point to jump right into that. And my first question to you if from your exciting background from all you did, if you had to choose just one story that best captures why you do this work today, what story would you choose?

SPEAKER_00 3:07

Okay, so I would take you back to year 2000, and it's January 2000. To be specific, it's the 21st of January 2000. I'm living in Halifax, Nova Scotia, Canada, which is on the eastern Atlantic coast of Canada, uh, and there's a big storm coming. Uh, and uh, as you mentioned, uh, at that time, uh, one of the things that I was doing, I was trying to predict on a daily basis uh storm surge. This is the effect of uh uh uh storms and weather uh on the ocean and how the sea level is going to rise or fall uh as a result of that. So when you have a big storm, depending on how it propagates and where it goes, it can cause uh quite a bit of damage. And so the day before, uh, my model predicted the one and a half meter higher uh sea level than usual one for some places along the coast of uh Bay of St. Lawrence, in particular uh Prince Edward Island, which is one of the provinces in Atlantic Canada. Uh and so the thing that you can do is uh you use that result to alert uh different uh people in different organizations to uh take measures uh that uh they can take to protect uh uh property, uh towns, and so on. Okay, and so uh the day comes, uh and at that time the whole concept of uh you know working from home was not necessarily uh ingrained in us as it is today, but I did have to work from home because there was so much snow that you couldn't get out of the house. Okay, so uh I uh connect uh myself to uh the computer system through a modem at that time, uh, and I realize that the actual prediction uh exactly follows what happened uh in the nature, which on one hand, for somebody whose job at that time is to predict the future is a great satisfaction because you nailed your prediction. But at the same time, you learn the day after that uh the nature actually uh caused uh destruction, you know, uh affected the coastal communities. Certainly, uh some of the help that I provided by alerting them earlier about it was useful, but it still didn't make a significant difference. So that's where you realize that in front of the nature and the fact that you are able to predict what's going to happen, you're still in a way in a situation where you couldn't do anything to change that. And that's in a way what uh influenced me to perhaps start working on trying to address some of these problems in the real world so that we can in the future ideally uh slower the climate change and uh you know find ways to do things differently that are more friendly from the environment.

Christian Soschner 6:00

That's a fantastic story. There was one point that um I find very interesting. Um you said you were not satisfied with the situation and you wanted to change something. While um I'm here in Europe, in Austria. Um, I can imagine that many people just say, okay, it's just the way it is. Uh, why should I do something? You can't change it anyway. Um, what sparked that, uh, what motivated you to say, no, that's that's not sufficient. I want to do something against this.

SPEAKER_00 6:26

I mean, in a way, it's the feeling of helplessness, right? Because you are uh facing uh a natural result that you predicted, okay. At the same time, you couldn't do anything about it. Like you couldn't tell everybody run for the hills, okay, or you know, pick up your house and move somewhere. So that's really the motivation that time that makes you think, okay, what are other things that I could be doing that can hopefully impact uh these kinds of situations in the future?

Christian Soschner 6:55

That's a good starting point. And there are many ways forward. Um, at one point you decided that uh allocating capital is the right thing. When was the first moment in your life that you realized uh that investment is the way to go?

SPEAKER_00 7:09

Uh I wouldn't attribute that to a particular moment. Okay, I was uh lucky and privileged uh to uh work on my uh research and thesis work during the period of internet craze. Okay, and that uh was uh compounding our collective exposure to a number of things. First of all, we were starting to be connected, okay. We had access to information, we were not just reading the newspaper or watching the TV to get access to information, we were using the internet, so that was a big change uh for all of us. Secondly, uh, we were you know bombarded by stories about uh startups, uh technology, uh innovation, entrepreneurs, uh financing, and all of that. And it's very hard to escape that virus, if you want, when you are uh watching it uh or following it on a daily on a daily basis. And then uh the privilege that I had was that working in academia, we were you know the first ones who had uh internet, uh good quality internet, good quality computers, and all of that. So it even further accelerates your interest in in these fields. So that's one element. The other element is, of course, uh, you know, uh getting a technical education helps uh to understand certain things uh from a fundamental point of view. And that all together combined, uh, you know, gave me the desire to start looking at the combination of entrepreneurship, technology, and investments as a way to uh kind of fulfill the dream of uh making the world a better place.

Christian Soschner 8:48

Let's stay with one point that you mentioned the internet transition. You said that uh you exactly in that moment in time you also had some some life-changing decisions to make in your life, uh, and the internet appeared. Can you compare the times without the internet and with the internet? What changed exactly for you thanks to the internet?

SPEAKER_00 9:10

Well, I I I I can I can share a story. So uh I was finishing my undergraduate studies and trying to uh think about graduate school. And I was uh uh, you know, for a number of reasons, set to uh decide going to uh graduate school in North America, so either Canada or uh United States, and this is early 90s, and internet somehow started in some places, but it was not widely available. So my way to uh understand what are the programs available and accessible to somebody from half a world away was to go to a library and flip through a phone book like some people will not know what phone book is, okay, but it was a big thick book that had phone numbers. Okay, so the same way there was a catalog of all universities and all university programs uh at the graduate level that existed in North America. So I would spend endless hours in the library flipping through that and figuring out which ones are of interest to me. Then I would go home. Luckily, in high school, I was forced to learn typing, so I typed up a letter on a typewriter, send it to a different place, and then three, four, five weeks later, I would receive a brochure with information and so on. Then all of a sudden, uh uh internet uh started showing up. Okay, and so uh we as uh kind of entrepreneurial uh students uh figured out that, well, it wasn't really accessible for us, but there are some shortcuts that we can make to do that. Okay, so all of a sudden we were spending endless hours on computers using other people's accounts that we somehow acquired, okay. Not to go into the details, okay, uh, reading what was at that time the uh prelude of what the World Wide Web became. It was called Gopher, okay, and it was a way to uh look at again the same content that I was looking at uh in the book, okay, uh, online. Okay, so you know, all of a sudden you get access to something uh by a click of a of a mouse and it accelerates your uh your access to information. Then of course, in '95, uh, we got first uh browsers, uh, and that that even further accelerated our ability to uh get uh all this uh all this information. But there's an anecdote uh around that. Okay. I was I was uh a graduate student uh in Canada at that time, uh, and coming from uh Croatia, there were you know hundreds of uh different Croatian students uh studying all around the United States, and uh we were all uh interested in uh following the news uh from uh back home, including uh sports. So we had a mailing list of about uh three, four hundred people where we shared uh sports results uh from uh uh Croatia. And I took up the responsibility to be uh in charge of sports. So I was uh gathering sports uh uh results uh and uh in the early 90s disseminating them by email uh to different people that were interested in those results. But you know, because uh of uh of that uh activity, I became known for some people as a sports journalist, okay, even though I had nothing to do, I was just relaying information. So when uh a couple of years later I got married, uh people said uh to my wife, Oh, you married that sports journalist. Okay, so uh you know, internet make uh makes uh different things uh uh look very different uh at the end of the day.

Christian Soschner 12:36

Yeah, that's true, that's true. And you mentioned telephone books. I almost forgot that uh this was a thing back then, the yellow pages to find addresses of companies. There was no internet, no easy way to find something. Um, and then writing a letter. This is also, I mean, five to six weeks' time until you get a response. And today we get impatient when we have to wait five minutes until someone responds via WhatsApp. Yeah, yeah, amazing time. A good, good, good development. You lived you lived and worked uh in several continents. Uh one and uh Croatia, Jugoslavia back then, I think in the 80s, yeah. Uh, Germany, France, and in Canada on both sides, the French speaking and the English-speaking side.

SPEAKER_02 13:22

Yeah.

Christian Soschner 13:23

Um, what did you take with you from the different environments that's useful?

SPEAKER_00 13:30

I guess uh what you learn over time, going one place to another is adaptability, is the first thing, and appreciation for different points of view. And in a way, understanding and learning over time, and that learning is continuous. I mean, it continues today. Okay, I may be older than I was uh many years ago, okay, but you still learn something new about a new culture, a new country that you visit that helps uh shape the way uh the way you think. But so one key thing is that I've learned to appreciate that there are different ways of doing things, and that there is no right and wrong, and that you have to uh adapt uh in uh uh different situations. And this is particularly important uh uh when you spend some time like I did in North America, where you know, in general, and despite nuances between English and French speaking Canada, this is still a Nord American uh North American uh context. There is a you know uniformity across a continent that has 400 million people. Okay, uh, so uh I actually experienced some reverse culture shock coming back coming back to Europe, where I had to figure out how to deal all of a sudden with you know a Dutch entrepreneur that's different, uh, and with a French one that's very different, or the uh English one. Okay, and all of these things uh become easier over time when you accumulate experiences in different places.

Christian Soschner 15:01

You said that you experienced the United States and Canada, 400 million inhabitants are both together, um, which also partially down to Mexico as one cultural environment. While you said in Europe there are so much differences between the UK, between the Netherlands, between Germany, between France. Is this really such a huge contrast?

SPEAKER_00 15:27

Yes, I would say yes, in especially in uh in uh uh in work culture and environment, right? Uh okay, uh there are uh differences across North American continent and even from town to town, okay, but still there are certain underlying principles that are generally accepted and do not change. Okay. In Europe, uh there are still big differences, but that's not a problem, okay. That's uh an element of uh uh enrichment for the whole environment as long as you understand how to work between them. Okay, and that's the that's sometimes you know challenge for some people uh in Europe where uh they uh don't necessarily uh accept that there are other points of view or other ways of doing things that might also be right. There's no right and wrong, uh there's just uh you know a way uh to do something, and we need to find a common ground uh to function uh together.

Christian Soschner 16:27

Yeah, that's true. That's true. It's another layer of complexity that we have here in Europe, but uh we can work it out, I think. We can work it out, hopefully. Uh, there was one sentence, I think it was um on your Sofinova web page uh in your personal profile, um, and in the preparation material. You said if you do not play, you cannot win. When did you form this belief in your life?

SPEAKER_00 16:54

I guess it goes back to my uh sports activities, but maybe uh this is more of a funny story that I don't remember, but I was told, okay, but it's kind of illustrative of the competitive uh nature. Okay, so I was a uh three, four, five-year-old kid, I don't remember exactly, I don't remember at all. This is my parents telling me the story, okay. Uh, at a at a kids' activity club, okay, and they wanted to organize a singing competition. Okay. I have very little to no talent for singing, okay, but I knew some songs by heart, okay. And so as soon as there was a an opportunity to compete, I raised my hand and I went up on stage and sang. Okay. Uh, you know, to date, my mom still makes fun of that uh that seed, okay. Uh, but I had no fear at that time. And I guess uh that whole idea that if you don't participate, you don't have a chance to win, is very important one, right? Because it's very easy to be uh comfortable sitting uh at home uh complaining about something uh and not participating. The moment you start participating, A, you have an opportunity to make a difference. Small, big, depends on the situation and it depends on your luck at the end of the day, okay? But at least you have a chance to do something. If you don't participate, then chance is always zero by definition. And for me, that's been an underlying element of everything that I that I do. And I uh equally approach uh investments uh in the in the same in the same way. Uh when in particular one has to make uh hard choices occasionally uh when companies don't work. Uh that's also a good criterion to apply uh in terms of ability to win or not at the end of the day.

Christian Soschner 18:45

This is a very important point that you mentioned. On one hand, if you do not play, you cannot win. And I've when I think back to my times in martial arts, um beginning something means you need to practice at the end of the day. You need to come to practice, you need to do something, and over time you improve. But to become someone like Bruce Lee is another level at the end of the day. And you mentioned uh in investing when a company fails. Did you find uh a recipe for this fine line, for this decision making to say, okay, this crew is bound to win, they should participate longer, they just need more time to practice compared to those where you say back to your singing example, you didn't become a famous singer. So I think uh I can say that uh confidently that at one point in time you decided, okay, uh singing is probably not the right way for me, so I do something else. What's the right what's what's the recipe to to make this decision to say keep going, keep moving forward, uh, or pull the plug and get out of it. It's it's useless, it's not not a good decision.

SPEAKER_00 19:48

So maybe I'll I'll expand a little bit the question, okay? To to uh to provide a lens that is uh predominant in venture capital, and then I'll come back to the specific uh to the specific point. Uh the nature of venture capital decisions is very uh counter human instincts. And so let me explain. Okay, uh typically uh humans are uh wired to help uh people in trouble, okay, that are weak, that need help. If you go to school, the teacher will spend more time with kids that have problems and less time with kids that are talented, okay, and so on. Okay. Uh it's the way we are wired. Okay. In venture capital, you actually have to act differently, okay. And I always use a parallel that sometimes gets me in trouble. Okay. If you have three children, but you have money to uh send to university only one out of them, which one will you send? The most talented one or the least talented one? So this is a capital allocation, in a way, uh, question, okay. And when you think about that, you will send the most talented one because they have the biggest chance to build on that uh uh uh you know education and succeed later on. So this is very much how venture capitalists need to look at a portfolio of companies where some are very successful, some are somewhat successful, and some were not successful. Okay, and that's where this choice of continuing to support those that are very successful needs to become a natural instance. So this is all to put it in context. So now to answer your question, what do you do with the ones uh that are not working? Uh this is the the the famous expression of pulling the plug, as we as we as we say. Okay, and that can be done in different in different ways, right? Uh, because uh uh you know, to make a link to this uh whole topic of uh playing uh or not playing uh in order in order to win, uh the fact that uh you did not win, right, sometimes doesn't mean necessarily that the underlying concept, technology or whatever the case might be is not something. That could provide a win at a later time. But the problem is that you have certain time constraints, you need to make choices within a portfolio, and therefore you need to let that go. But what some people, in my view, do wrongly, okay, when that moment happens, they want to pollute the entire store. Okay. Instead of allowing whoever wants, okay, entrepreneurs, a new party, and so on, to continue the journey. Okay. And hopefully one day prove you're right in the sense that you know you did make the right bet initially, the timing was off, and many other things may have been off. So therefore, you know, you did not make any money from an uh investment point of view. Uh, but at least the company ends up being successful uh many years later, uh, because uh you allowed for uh let's call it uh a reasonable transition into somebody else's hands. So I hope that makes sense.

Christian Soschner 22:58

Yeah, yeah, absolutely. I like this point that you made uh to not pollute the process. So when you come to a decision that probably the team is not winning, um also I understood your point that you also imply you can be wrong that uh your judgment must not be the right one, and the team can later on win and you don't pollute the process. Uh, is this the right understanding?

SPEAKER_00 23:20

Uh well, with the nuance, okay. Um we're not in complete control of our destiny. That's first of all. Uh, when I say we, I'm talking about investors, right? Because uh uh uh investment funds have their lifetime, and therefore uh they are uh obliged at some point to make decisions that may not be of their choosing, but they're just the nature of the industry. Okay, and so uh uh you uh in a way make a decision that you want to get out of an investment because uh you did not fulfill uh the plans that you that you had, okay, but at the same time, you allow other people to uh to continue. So it's not necessarily about being right or wrong there, it's about different set of circumstances that you encounter, you know, uh in a particular moment uh uh during the evolution of a company.

Christian Soschner 24:07

That's why we're diplomatic enough to point. I have to remember this in for the future. It's it's really it's really good point. Um, there's another point in in your life that you mentioned already, and maybe we can dive a little bit deeper into that. Uh, journalism, uh, sports and competitive basketball. How did you discover that?

SPEAKER_00 24:26

Uh I guess your height uh you know influences a little bit your choice of uh of sports. Uh, and then I was growing up at the time when uh in my country that was uh by far uh sports number one. Okay, and so there is this uh you know uh follow the crowd uh element where you know in high school uh I would be spending you know two or three hours uh uh per day uh playing uh you know outside uh with friends, and then additional uh one or two hours in formal practice. Okay, so this is you know a huge investment, huge investment of time plus uh plus school, but it's exciting, you know, you're young and you and you and you like that, uh, and you learn a lot from uh competitive sports, uh, in the sense that uh you learn uh how to work with other people, which is very important. You learn uh how, especially in team sports, you're not necessarily number one, okay. Uh, there may be other people that are better than you, you may get less playing time, uh, and you still have to be part of the team and accept that as a as part of the journey. And then you also learn how to lose, okay, because uh, you know, it's not easy uh uh to be winning all the time. Um, I don't remember uh I read a couple of months ago an interview with Roger Federer, who was saying that uh he was only 52 percent uh you know successful in his shots. Okay, this is one of the most successful tennis players ever who was only successful 52 percent of the time. Okay, so when you put that into a context of many other things that we do that we do in life, uh sports uh teach you a lot about humility and how to uh manage situations that are sometimes uh difficult, but you have to accept and move on. And so if you have a chance uh as a young person to experience that, you don't realize the value of that, you know, for the next uh 15-20 years. Okay, but then later on, you actually uh uh think back and you say, Oh, you know, uh this was uh uh you know an important element in my upbringing to allow me to behave differently, maybe in some situations later on.

Christian Soschner 26:41

Yeah, sports is definitely a good good uh school for young people. I didn't know that basketball was so big in Croatia back in the 80s.

SPEAKER_00 26:50

Uh in the 80s, uh Yugoslavia at that time uh was second best to uh Americans.

Christian Soschner 26:56

Really?

SPEAKER_00 26:57

Yes.

Christian Soschner 26:58

Why was did you ever research? Why was there so an emphasis in? I always thought Europe is always soccer.

SPEAKER_00 27:04

Yeah, so it's hard to explain. Uh, you know, sometimes, like I said, it's it's a result of uh uh success that then feeds other success and kids choosing that career. There was also the fact that you know there were some very successful players. So, you know, I was uh growing up next to people like uh Drashan Petrovic, who was one of the pioneers of uh you know European basketball in the NBA, unfortunately died in the car crash 1993. Okay, uh Tony Kukoc, uh, you know, uh uh um Vlada Divac, uh Dino Raja, and so on, who made it to uh the NBA, which was uh by far before that an untouchable uh space uh for any foreigner, let alone let alone let alone Europeans. So all these uh you know uh people that were a couple of years older or my generation uh made a big impact on uh on everybody by being successful uh uh across the board uh uh in the US eventually in the 90s.

Christian Soschner 28:03

That's great. You mentioned that you learned a lot of valuable stories as a pro basketball player. When you have to choose just one, what's the most important learning from basketball that is useful for you as a venture capitalist?

SPEAKER_00 30:04

That's a it's it's a hard one because you know uh sports in general are instant gratification. You know, you win or lose. Okay, you're part of a championship that you know, over I don't know, five, six, seven, eight months eventually yields a champion. So you win or lose that uh championship, but it's still relatively short term. Venture capital, you have a lot of small battles that you win or lose along the journey, but that journey is way longer. Okay, so if there's one thing you can bring from sports to venture capital, it's patience. Because even though sports allow you for instant gratification, you still need to be patient in many aspects to be successful in the long term.

Christian Soschner 30:52

Yeah, that's a good point. Let's let's move over to your journey from scientists and uh pro basketball player to capital allocator. Um, another question around that you have a lot of experience in that field with Sofi Novo. Um, what do scientists most often misunderstand about venture capital?

SPEAKER_00 31:15

I would say uh uh the key challenge for scientists uh and venture capital is operating with partial information. Okay, so as a scientist, you are trained to chase the truth. It doesn't mean that every scientist comes to the absolute truth 100% of the time, okay, but your training is such to keep digging uh uh and keep uh uh trying to find ways to prove something to be uh uh undoubtedly correct. Okay, venture capital, and the earlier stage it is, the more pronounced that challenge is, but you need to cooperate with uh so many unknowns and yet make decisions, and so two things that become problematic for scientists. First of all, uh the fact that you don't know so many things, okay, so you are uh trained to do a lot of work, research, and come up with some conclusions. In venture capital, you do some research and you do some hard work, okay, but uh you have to stop at some point in time and make a decision. Okay, and so that the second part, decision making is also something that's not necessarily ingrained in scientists because they don't have to make, I mean, they have to make decisions on uh you know experiments that they're doing or something like that, okay, but it's not uh something that's continuous. In venture capital, you have to, I won't say daily, but relatively frequently make decisions one way or the other, go, no, go, assume the responsibility and move forward. So those two elements are the most challenging one from for scientists that come into venture capital. And I have always seen as my responsibility when working with you know junior members of the team that come from science background to help them bridge that gap, teach them how to navigate that, uh, and hopefully uh make out of them one day successful investors.

Christian Soschner 33:16

How was the transition for you? I mean, I can imagine um when you said you work as a scientist and uh are trained to gather all the data and make a decision based on all the data you have, and be a little bit of a perfectionist, and then suddenly you work in an environment where people say you you will never have all the information, make a decision now. Uh how was that personally for you, this transition from the scientist to the capital allocator?

SPEAKER_00 33:51

So I had another uh uh complicated okay. Uh my first experience in venture capital was working with university-based technologies. I was working in a fund that was helping initially to commercialize university-based technologies. So you are dealing initially with people that are very much similar to you in terms of background, okay, yet don't have this uh different angle of responsibility. So you need to, on one hand, uh bring uh this new way of thinking to them and uh allow them to be more rigorous about uh what uh what they're doing. But on a personal level, you relatively quickly adapt to that if you have good colleagues. And I was fortunate in my in my career to always have good colleagues who were able to uh teach me, for lack of a better word, how to think about that. And I still remember in my early days in venture capital, one of my colleagues always telling me, use the test, would you put your own money into it? Okay, because that's the ultimate test uh to tell you is this good or not really.

Christian Soschner 35:01

Yeah, that's a good point. That's a good point. Um I think the you mentioned tech transfer. You work uh working for a fund that basically commercializes or tries to uh move forward scientific results from universities and research organizations. I mean, research organizations are usually focused on, of course, it then it's in the name research and science. And then you spin them out into a development company. How do you, as an investor, make sure that this team doesn't get stuck with science and uh just operates like a scientific lab in a corporate shell, but really starts a trajectory into a development company? What's what's your secret source here?

SPEAKER_00 35:47

Well, I think it would be too arrogant to say that there is a secret source. Okay, first thing to realize is that every single situation is different in itself, okay. And it's different because it includes different people, sometimes different topics or different types of science. So once you realize that, uh, there are uh some things uh that are important. Uh, it's uh a kiss of death to leave a scientific team alone without people that have experience in commercial development. So while you need a strong RD team uh at the early stages of a development of a company, you want to complement them with somebody who has gone through that same journey in a commercial context. And I still remember to date uh an investment in a in a in a company here in in Paris uh uh some years ago, where the team was excellent scientifically. Okay, and then as I don't know, employee number 10, okay, uh, they hired somebody who was a little bit older than them and had experience in commercial context and it transformed the company positive. And so that uh uh element of understanding how to introduce people that are similar yet different or come from different uh uh experiences is very important in getting these companies on the right on the right uh track. The other element, which becomes on the human level more complicated, is to have a conversation early on with scientists that may be involved in the company in early days about when they will drop off. Because depending on the nature of the company and on their uh interests, uh they may not be there forever. Okay, and uh it's sometimes better to have that conversation earlier rather than later to avoid disappointments, and also to plant in a way in their head this idea of not being irreplaceable, okay, because the company evolution, by definition, requires people to be not replaced, okay, but complemented with other talents so that the company can progress on this journey from unique technology in RD context to you know a commercial machine uh that's uh uh selling and making money uh uh many years later.

Christian Soschner 38:17

I find that point extremely interesting because, in my opinion, it makes the difference between a winning company and um a company that uh gets sometimes stuck when I look across the board um at corporate setup, especially in the early stages, they where we often see um board members, executives that all have a scientific background and um have, of course, this development goal of becoming um the next CRISPR therapeutics, the next Intelia, the next Tesla, depending on the area and the deep tech area they operate in. Uh, but actually always refrain from hiring the expertise that's missing. Um, my question to you is um how do you handle these conversations with the people to open their eyes in that direction?

SPEAKER_00 39:06

Well, this is first of all uh part of the uh due diligence process when you're assessing a potential investment, uh, which amongst other things includes most importantly the assessment of people. Because uh you need to understand whether they have the mentality to tomorrow uh make the hard realization that A, I'm not the right person to continue leading this company or being responsible for whatever the case might be, but need to uh complement myself with the with somebody else. So, how do you do that? There is a declarative level where everybody will say what you want to hear. Okay, sure, I will leave my job you know uh tomorrow uh when uh the board or investors or the rest of the team concludes that I'm not the right person uh to do so. Okay, uh that's easier said than done. Okay, yeah, so uh in that conversation, you need to figure out the level of maturity of that person to really come to that realization, and that brings no guarantees, okay, that it will happen the way you anticipate, okay, because in some cases you find that somebody is you know uh too stubborn, uh, you know, uh too inflexible, and you decide not to invest because that being one of the elements, okay. In others, you conclude that maybe we are on the right track, okay, but then still, you know, there is the moment when that happens, and uh, you know, execution maybe not the right word, okay, but you know, putting in place uh uh uh that change that is anything but trivial or uh easy to live, both for the individuals involved and for us that sometimes uh or oftentimes need to act as catalysts to that uh to that decision.

Christian Soschner 40:58

I mean, you have coached probably uh and developed many companies in your life and teams and and seen this in that first hand. Um, do you have, I mean, we all want to invest in the next Jensen Wang, in the next Elon Musk, in the next uh big thing at the end of the day. You mentioned also uh that you're looking for character traits. Uh, do you have do you have a list, a short list, or do you have um uh a catalog of criteria where you say, okay, this might be the right person to become uh the next Elon Musk or the next Jensen Huang?

SPEAKER_00 41:32

I wish I had. The answer is no. Okay. Uh and uh I I oftentimes I kind of wonder myself, uh have we advanced sufficiently both in terms of understanding people and maybe technology to be able to develop a you know a photo robot of how that person would need to look like. But for now, the answer is uh no, with some indications. Okay, and and the key thing there is uh the fact that uh different people work differently with other people, okay. And so that uh personal fit is one of the key elements that needs to work out between, okay, in uh in case of my work uh investor and uh founding founding team. And that's why I often tell uh uh you know CEOs of these young companies it's not the fact that we like or not your technology, okay. You need to find investors that you get along with very well, okay, because uh that element is very important or critical success factor for later on. And here's why. Because initially, uh and this position also got me in trouble a few times, okay. Uh uh, investment in a startup is like a marriage that is predetermined with a divorce at some point in time in the future. Okay, and here's why. Okay, because uh when you get going into an investment, everything is rosy, okay. You confirmed your investment thesis, uh, you confirmed the team, uh, the market is great, technology is great, your IP protection is great, you know, everything works fine, okay? Then you start going and then you hit some roadblocks, okay? Uh something doesn't work, uh, the scale-up is more challenging than you thought, uh it's difficult to raise funds, so there are ups and downs. Okay, and so, like in a human relationship. And so, in that process, you need to make sure that when downs come, the team that is investor and entrepreneur can function together and weather those storms multiple times over. Okay, then when I talk about a predetermined divorce, it's there because investors need to exit an investment, and therefore, uh, that relationship will not continue in a professional context. That doesn't mean that we want to continue to be in contact with these entrepreneurs, uh, sometimes become friends and so on. Uh, but you know, it's not going to last uh last forever because of the nature of uh venture capital investor business.

Christian Soschner 44:05

I have never looked at it this way, and it's absolutely true. An investment is how do you say pre preconditioned divorce?

SPEAKER_00 44:14

It's already a marriage with a pre-arranged divorce, you know.

Christian Soschner 44:18

Pre-arranged divorce, a marriage with a pre-arranged divorce. Yeah, it's true. I mean, you invest and uh you need your exit in five to ten years down the road at any point in time and won't participate forever. This is the trauma.

SPEAKER_00 44:29

Once I said this at a conference, and then people came to me back and said, Do you have marital problems? You know, we're talking this way.

Christian Soschner 44:36

Yeah, this, yeah, yeah, yeah, yeah. You can imagine. I just I just imagined uh saying this to a woman or to a wife with uh yeah uh predetermined divorce anyway, so it's uh it doesn't go ahead, but in in in business life it really is, and this is detrimental, I think, to how but it's it's that you know the importance of the relationship and ability to weather the challenges that is very important, yeah. Yeah, no, absolutely, absolutely, absolutely. Yeah, but I think how many how many founders understand this when you talk to them that basically you won't be there forever for them, that uh your job is to bring them to the next stage and it's hard to it's hard to quantify that, okay.

SPEAKER_00 45:15

Uh one of the uh traps, and this goes beyond investing. I mean, this is a human uh trap, is that we all hope that people will change, okay? But it's wrong. Okay, in 99.9% of the cases, people don't change. But we still expect, in particular, working with young people, that we can influence their pattern uh in a positive way so that they can uh learn. Certain things and understand certain things better. And I have a few times succeeded in doing that, uh, many times failed, okay. Uh, but uh, you know, working with young entrepreneurs, explaining to them how uh this uh uh relationship between investor and entrepreneur is not a contentious one, it's a collaborative one, how you uh need to work together, how it's not you know uh uh a win-lose, it's a win-win that we're looking for, and so on. Um, but uh it's uh it's hard work.

Christian Soschner 46:16

It's so against human nature, all this uh venture capital and entrepreneurship. I just realized um when I think about it, uh the chances of a startup founder succeeding is less than one percent in concept stage. Yeah, then you have to deal with people who tell you quite frankly, right from the onset, uh, we won't be there for you in a couple of years, and uh human nature is more going direct uh in the direction of being part of a tribe and uh contributing and being part of that. And at the end of the day, it's rejection, it's failure, um and an ever-shifting environment with new people, old people leaving. Um, what does that make with humans in your opinion? What was your observation? How do how do they how do they evolve in this environment? It's very really, really very special for me.

SPEAKER_00 47:03

Uh yeah, but in a way, you either sink or swim, you know, uh because there's no there's no in-between. Uh so uh uh uh you you need to be able to to to adapt. And uh you know, going back to kind of uh uh different sectors, in in deep tech, one of the one of the biggest uh challenges for for startups is this ability to evolve the team uh over different phases of the development. Uh you know, scientific uh uh research in an early phase, then product development, then scaling up to industrial production, okay, then actually running operations, right, and commercializing all ask for very different skill set over time and makes it okay nearly impossible to do that in a perfect manner, okay, where you phase in and phase out the right skills. Okay, the other challenge you have is that people that are there they think, oh, I can jump to the next level because you know I'm smart and I understand and all that. Okay, sometimes that works, sometimes it doesn't work. Okay, so you need to bring new talent to the company, and so that continuous evolution in a deep tech company happens across many different elements that I just described that is non-trivial. If you contrast that to uh uh you know a pharma uh uh biotech startup, okay, that essentially uh no offense to anyone, remains RD until it gets acquired. Okay, it goes for different different phases of you know preclinical and then clinical uh uh uh development, okay, but never need to think about you know uh margin, uh production, operations, or let alone selling to someone. Okay, I mean you need to sell the story and the company, okay, but not not something concrete. Okay, so in the deep tank, you have to cover all these things, you have to cover them in a reasonable timeline, and it requires a very different skill set that you need to bring in and out so that the company becomes successful.

Christian Soschner 49:05

Let's stay with the skill set. What what skills, in your opinion, on the on the executive board level are necessary for a deep tech company?

SPEAKER_00 49:18

I think it's clear from what I just talked about is that they vary over time, and so uh initially they are good project management skills and ability to communicate. So no matter the stage of the development, storytelling is a critical success factor, and it gets underestimated because at the end of the day, uh, we investors, tomorrow, acquirers, or you know, public markets or so on are all humans that buy or not a story. Okay, the story needs to be substantiated with you know margin, uh, unique technology, intellectual property, and so on. But at the end of the day, it's about the story. Okay, and if somebody can capture your imagination, you are more inclined to make the sale or to make to buy, okay, and therefore for them to be successful in selling that to you. So that ability to uh communicate is very important across all stages of the of the company. Okay, and then as the company progresses, we need uh uh people that have experience in operating what I would call for simplicity a more serious company, meaning more people, uh deeper organization, and then execution of certain things. Okay, but run a risk, and this is always a risk, of bringing people from very big companies that cannot adapt to startup mentality. So, one of the first questions I ask when I'm interviewing uh people, and I always help uh companies recruit their executive team. So I'm I'm doing uh interviews on behalf of the board, uh relate to you know understanding the level of independence somebody who is high up in some organization has. Okay, like can you book your own travel? You know, uh, do you I mean it's as simple as that to figure out how independent people are because tomorrow in a startup environment, everybody has to take the garbage out. There's no uh you know uh five assistants that are going to do that for you. So need to be you need to be uh skilled in downgrading maybe your level of comfort that you had while embracing all these uh new things that a startup uh offers.

Christian Soschner 51:42

Yeah, good points. I like the storytelling point. Uh the first the first part, which I think uh in my opinion, the the best example that I know is uh is Apple, uh Steve Jobs and Tim Cook, the combination. Um Steve Jobs initially, I don't think he was a good storyteller when I read it for his biography, but he evolved into that, but also then understood that at one point in time when he returned to Apple in 1997, that probably the operations part is not the best fit, and he hired Tim Cook. And I think this this combination of Tim Cook and Steve Jobs uh let the groundwork for the success of Apple.

SPEAKER_00 52:15

There is an amazing book uh uh to read if you haven't. It's called Apple in China. Uh that you know talks about Apple in China, but also uh explains very well this operational element and the excellence on the operational side that was developed uh over that period uh that you mentioned. I have not read the book yet. Do you recommend it? Yes, absolutely. For for many reasons. Okay, it covers many different things that also it's I mean, it's a recent book and it also resonates with a lot of things that are happening right now.

Christian Soschner 52:45

That's a very good point. I will think I have to read it. I have to read it. Um there was also one interesting part that you mentioned in in in um in the material. If nobody is willing to buy, it's a hobby. Um, I mean, when we talk about deep tech from tech transfer to the big success story like Apple at the end of the day, I mean, it's of course Apple now is a sales story. Um when is the sales skill beyond storytelling? With storytelling also for biofarmer, you need to tell the story, of course, to pharma companies and to VCs, but it's not so necessary to sell it directly to patients at the end of the day when they are in the early stages. Um, this this um sales skills, this distinguishing between willing to buy and uh treating it as a hobby, getting out and staying in, and how to understand how to find customers. When is it uh necessary to develop the skill set in a deep tech company, in your opinion?

SPEAKER_00 53:45

Uh ideally from day one. Okay. And from day one, yes. And maybe the company doesn't have anything concrete to sell from day one, but it needs to keep the conversation open with those that are potential customers for a number of reasons. First of all, going back to communication element, understanding how your story is received. Okay, do people understand what's your value proposition? Uh, is it of value to them? Okay, or do you need to adjust? Because the worst thing is to say, okay, I know what the world wants. Okay, let me hunker down in my garage three years later, I'll come up with a you know beautiful widget and I'll come uh to the market and people will buy. Well, maybe they will, maybe they won't. Okay, so this ongoing conversation to understand from your uh customer set are these people actually your future customers? And are you solving a problem for them? Is an ongoing effort. Okay. And so uh while my point about you know sales solving everything relates more to actual sales that bring cash, okay? Uh this is still an ongoing, an ongoing process. So now you will tell me, oh, but you know, Steve Jobs presented iPhone without ever uh doing any market research or or understanding that people want a touch screen phone and it was a big hit. True, okay. How many uh you know, millions of other products uh were you know trying to get out on the market and did not succeed? Okay, so this element of uh continuous sales process, even if you have nothing to sell, is very important to gather market feedback, okay, because that market feedback allows you to adjust what you're developing and adjust your story in terms of what you're selling, okay. And that's ongoing, okay. But ultimately, okay, you need to find somebody who wants to pay for what you do. Okay, and so in the deep tank context, as you said, timelines are very long. Okay, so how do you uh still get something while you have nothing to sell? That's one of the challenges. So you can do that by, for example, uh signing collaboration agreements with big companies, okay, that are willing to uh finance uh part of the development for something that is of interest to them or some other form of collaboration that will bring money in, okay, that's not selling a product, but it's still selling the aggregate knowledge that you have in the company around a potential uh product that will come later on. So you're getting validation from the market because nothing validates what you're doing better than cash.

Christian Soschner 56:27

Yeah, yeah, I agree. I think also Steve Jobs was proficient in that. I think uh I don't, I don't, I don't buy this. He didn't he did not really do market research and anything of that, just put it out. I think he was a genius in understanding what people want, but not asking them how their solutions would look like. But when you look at the deep tech founders, I can imagine when they hear your words right out of university and into their first company, they just say might say, Yeah, well, I mean we are scientists, we have science, and uh why should we go out on the market uh and and sell to someone it's still 10-15 years away from the market? Why should we focus on sales? What's your answer to them?

SPEAKER_00 57:07

I mean, I I still remember the words of uh of a scientist at one point in time where he's where he told us we've we've developed everything, you just need to sell it now. Okay, it's like uh no, I think uh it's natural for technical people that are focused on that part of the development process to underestimate what needs to happen later. Okay, and so it's our job in a way to bring that understanding to them by describing A, what are the elements of that process, how does you know scaling up technology work, what it involves, how much it costs, and so on, so that they can develop an appreciation that yes, their fundamental steps are critical for the future of the company, but there are so many you know floors that need to be built in that skyscraper for it to reach the sky.

Christian Soschner 58:07

How do people perceive that uh when when when you when you tell when you tell them that? How how are their responses?

SPEAKER_00 58:15

Well, this also becomes a filter at some point in time, right? Yeah, if they cannot really appreciate that and understand that they uh there are many things after them and they will need other people to help them, then probably they're not uh uh mature enough for uh an investor.

Christian Soschner 58:34

Okay, okay, so it's basically then they downgrade themselves as investable asset at the end of the day. So it's not only the technology that you are looking at, but very much the team, the team composition at the beginning.

SPEAKER_00 58:44

Okay, the the saying is the same way it's real estate, it's location, location, location. In our business is people, people, people, and it has multiple facets, right? Uh, and this uh observation of their behavior is ongoing, continuous, okay.

Christian Soschner 59:04

So you as an investor say that also in deep tech, it's not so much about patents, the science, but very much more about the people behind it that drive the company forward.

SPEAKER_00 59:17

Let me nuance that a little bit, okay. The patents and science provide fundamental building blocks for a business to be built on top of that. Without it, it's like not having a foundation, right? The building would crumble. So it's very important to have good science and good IP. Okay, but without great people, you will rarely succeed. Okay, so the saying is that you know a B team will probably destroy uh exceptional uh technology, but that a team will make a success even of uh uh an average technology.

Christian Soschner 59:54

Yeah, that's a good point. Let's talk, let's let's stand a little bit here and talk about the relationship between founders, entrepreneurs, and investors and how you how you define yourself. Um I mean in business schools is always very clear. I mean, investors are capital allocators. And when you look at reality, especially in during the pandemic, there was this notion that investors are much more um, they are your partners, they're not capital allocators only. They also uh provide the network, their expertise, help the company. And when I speak with founders, very often they say, uh, can you also just work for us at the end of the day and invest capital? I don't take anything. Uh, how do you define your role as an investor in deep tech?

SPEAKER_00 1:00:37

I mean, your role in a way is the uh first raw cheerleader of the of the company to make it to make it simple. Okay, but uh I I often meet uh young people you know coming out of a business school who are interested in venture capital, but they see it as a finance uh uh job. Okay, and I immediately try to uh dispel their expectations that this is a finance, you know, the finance involved in venture capital is at the high school level. Okay, sorry to say so, but you know, it's not it's not uh very, very complicated. So it's very much uh uh uh uh people's business and it's very much all these things that you mentioned that help uh companies uh succeed. So at some point in time, we are uh doing business development for our companies because we are meeting other people and we are recommending solutions from our companies. Next day we'll be meeting people that are you know operating uh contract manufacturing facilities. So we are pitching our companies to these contract manufacturers and vice versa, learning about their capabilities so that we can transfer this information to our uh uh portfolio companies. The next day we are meeting people that are providing you know that solutions, okay? So we quickly understand who uh could be eligible for this or not, and you know, transmit that information and so on. And so, in many ways, we are, and this is very important for people to understand, we are always in the backseat of the car, we are never driving the car. And I have met you know quite a few uh entrepreneurs that were lured to become venture capitalists because of their entrepreneurial success, that was phenomenal, okay, that found themselves disappointing, disappointed by the fact that they had to be in the backseat of that car. And that's a very difficult discipline to uh accept where you know you are somewhere and you are an investor in a company and you feel that you can do better than the person that's responsible whose job it is to run that company. And the worst thing you can do is to try to tell them what to do, okay? Because then you know it's a it's a very difficult uh situation uh to navigate. So I've seen uh quite a few people you know eventually walk away from uh an investor job because they couldn't accept this detachment from decision making because they thought that they knew what needs to be done, and therefore uh they were impatient in uh you know sending that message uh to uh management teams.

Christian Soschner 1:03:13

To sum that up for me and uh to see if I understood it correctly, um, you define your role basically as more as coaches or or mentor to a team when you invest in a company. Um, you see your role as cheerleading the company to CROs, to manufacturers, uh, when we talk about biopharma to clinics, when we talk about sustainability to suppliers from all walks of life, to other investors. So you cheerlead the company, but always with the backseat mentality in mind that you say, okay, I can help you tell your story to the market, but actually selling, actually doing the hard work behind it to make the deal happen, that's on you. That's on the entrepreneur, that's not on the investor.

SPEAKER_00 1:04:00

Uh yes, and one thing that entrepreneurs oftentimes underestimate is what do they get from an investor, right? You get all of these things that you that you listed, but they also get the intelligence that comes from the portfolio. Okay, because many many entrepreneurs think, oh, I just need the money, okay, and I will uh I will know what to what to do with it. Okay, then investors tell them, Well, but we are the smart money, okay. Everybody's smart money, okay. Uh we bring this or that, okay. Yeah, yeah. Uh so then you know you kind of uh try to understand who is smarter uh amongst the all the smart money that's out there, okay. But then uh the key thing is that we live you know 20 lives in parallel, okay, across a portfolio. An entrepreneur has one company that takes 24 hours in their day and has to deliver on that. So they don't have the visibility of what happens when you are in the backseat. But when you are in the backseat, you can be in the backseat or have the view of multiple companies. And those learnings that come from one and can be transferred to the other are highly valuable elements that a single entrepreneur just cannot see because they're head down trying to execute on their company. And that's the element that I find the most underestimated uh uh vis-a-vis uh investors that entrepreneurs uh fail to observe.

Christian Soschner 1:05:20

Let's stay a little bit with with uh the relationship between investors and founders or investors and entrepreneurs with two examples. I mean, that happen quite frequently, one is hiring and the other one is uh fundraising. So I can imagine that when uh have you on the board of a company and I should uh be the CFO and run the company, uh, that at one point in time we go out and uh and raise funds. How do you define your role as an investor in closing a series P series C versus the the CFO or the CPO or the CEO and the company?

SPEAKER_00 1:05:54

So our our role is in providing connections as quickly as possible. So we go and talk to other investors that we know, we introduce the company, we make the initial sale in a way, okay, to we create a hook to put back. Okay, we create a hook that should uh ideally intrigue someone that knows us and we know them, okay, to have a further conversation with the company. I should not be the one trying to sell the business plan of that company, okay, because A, it undermines the company, and I'm not going to be doing it anyway. Okay, so they need to see the team that hopefully shines and is able to uh deliver that story. Well, how does that work in practice? Okay, well, sometimes I make an introduction, and of course, I'm enthusiastic about all these stories because that's part of my job, but then the the team that eventually gets uh the audience disappoints, right? And so people come back to me and say, Oh, you know, okay, you sold me this as a much uh much more exciting story, but you know, uh they were not uh they were not that convincing. Okay, well, that's the that's the the the risk, if you want, or the or the trade-off, but that's something that you that you have to uh live with. So our job is really creating that initial pool, promoting the company, and then nudging that process as it goes along. Why? Because uh an incoming investor may not be as open with the company as they may be open with me, and vice versa as well. I can tell them, you know, this team is good, but you know, there is one or two people that may need uh replacing, and so on. So behind the scenes conversations are equally important to get to a positive outcome in refinance. Company where we're already.

Christian Soschner 1:07:44

Yeah, transferring social capital is not an easy process. It's not just uh I know you, I know you, and uh now let's work together a little bit more um behind it. But I just can imagine, I mean, it's just uh while you were speaking, I thought how can we put this in the funny angle? And it was just thought, okay, when I'm the CFO, the CEO asks me, Christian, how is the fundraising going? And I say, Yeah, Joshko is doing it for us. Uh said, send me the pitch tag, and he's now making the introductions. Trust me, in one month we have the capital on the bank account, and then the CEO gives you a ring and says, Hey, Christian told me that you do the fundraising now. Um, what would you reply?

SPEAKER_00 1:08:20

Uh there's nothing wrong in helping companies, right? But at the end of the day, it's the company leadership that needs to uh be the face of the company. Okay, and that's uh, you know, I I I have uh uh colleagues that sometimes uh misunderstand their uh position in that process, right? And they they try to dominate it, okay. But again, it comes back to the understanding that tomorrow I will be always in the backseat of the car, I won't be driving the car. So if you create a false expectation in a way by uh shortcutting the team, you're doing yourself a disservice because you're not really you know putting in front those that will execute on that on that plan. So uh, you know, one has to be very careful uh in those kinds of situations not to again try to dominate the process.

Christian Soschner 1:09:16

So it's always with the backseat mentality in mind, and your expectation also to the team is that they drive the car and that's what they when push comes to shuffle, it must be them and not just saying, okay, you as the guest in the backseat, now it's your turn to take the wheel. Um, when I mean fundraising is a good example. The next one is hiring. Um, when you think about the hiring process, how do you how do you you have a tremendous network? You have big funds in the background, um, you have many companies you see when companies shut down, and very often probably more helicopter view on the market. How do you see your role as an investor when it comes to hiring in a company?

SPEAKER_00 1:09:59

A couple of uh uh places there. So, first one is being part of the strategy discussion and identifying where the gaps are, and hopefully doing that with some kind of you know 12 to 18 month perspective, not to find yourself in a situation that's oh, you know, uh we need someone tomorrow. Okay, yeah, uh, so that's that's that's first thing. Second thing is then uh helping uh spec out uh how this next hire on the management team would look like. Okay, so understanding uh who is on the team and how would the uh description of that role look like so that it best complements the team, so that you don't have too many, too many, too many overlaps. So now you create a you know the French expression is uh mouton à cinq pat, so a sheep with five feet, okay, that doesn't exist, okay, and you go out and try to find that person. Uh it's always better, uh, in my experience, to use a third party in doing that recruitment unless we have around our network, you know, three or four very qualified candidates for a particular position, okay? Where because the key point is that if you only bring one person along, then there's no counterparty to check against, right? And then the company can say, well, this person is great, okay, but you know, how do I know uh that others don't look better or worse? So uh it's preferable to work with uh with third parties, and then we are part of that part of that process where again the management team uh drives the show, they talk to all candidates. Uh we have conversations in between, but then uh board members typically talk to a select uh few on the short list to provide their opinion, uh, how uh they see uh this person working a with the team, okay, and uh benefiting uh the company for the next stage of the development.

Christian Soschner 1:12:01

Yeah, I like this point that you mentioned. You should not always talk uh only talk to one person when you want to fill a position. You should talk to more and this is the reason why to to uh include the third party like a headhand or HR company to run the process. I like this one to 100 rule, it's uh not true in all uh all the times, but uh I think it's a good thump rule of thumb when you want to invest in one company, look at hundred. When you want to hire one person, talk with hundred potential candidates so that you really get this uh this full picture.

SPEAKER_00 1:12:31

Uh yes. And so, for example, uh, as we were building our our strategy, we got oftentimes challenged why do you work both in Europe and North America? Uh and uh uh the answer was relatively simple and it resonates with what you just said. You need to see as many things, and ideally, you need to see many good things so that the decision you make to back one out of hundred is based on a very good sample of excellence, okay. And that uh excellence then drives your choice of uh investments that ideally are the best among those. You make many mistakes, okay, but sometimes uh you get it right.

Christian Soschner 1:13:14

I totally agree. I totally agree. And when you look in at Europe, um very often there is the notion to just look at a very small region, so at the regional fund. But this this leaves out then this uh this pattern recognition at the end of the day.

SPEAKER_00 1:13:30

Yeah, and you know, uh exposing yourself to how other people think in other places helps you uh diversify your way of thinking as well. So my uh objective on all the boards that I've been part of and helping uh entrepreneurs uh recruit uh new board members has been to bring diversity, not in a uh conceptual uh point of uh way, but really different people from different parts of the world, so that they bring another way of thinking, another network, another way of challenging you so that it enriches uh the company. And then, you know, sometimes in some countries, not to be named, you have a question of language, right? So, oh, how do we do that? We have to change the language of uh it's a challenge, okay, but I think it's for the better.

Christian Soschner 1:14:20

Yeah, I totally agree. I like this term diversity still. I know there's a little bit of political discussion around diversity, but at the end of the day, you mentioned earlier adaptive adaptability adaptability. Now I have it, and I think the only way to develop that skill of being adaptable to different situations is exposing your exposing a person to different situations. Um diversity is one one route to go. Why why but why is currently the term diversity so so controversial?

SPEAKER_00 1:14:54

Well, I don't know. I mean, because it's it's used in different different ways, right? So I mean I don't I we don't need to get into that uh discussion, and you know, if if it's not that word, it's uh it's something else, right? But for for uh uh boards in particular, the important element is uh uh I won't say not to have consensus, but to have enough contentious elements so that it creates discussion, and that discussion often yields uh better conclusions than uh everybody agreeing uh from day one on every single point.

Christian Soschner 1:15:27

But we go back, let's stay with this point and go back to a little bit earlier uh the relationship on a board between founder and investor. Yeah when there is a situation when everything goes well, there's so very often situations where everyone agrees in the room. I mean, of course, I mean you have revenues coming in and uh the hires work out well, and there is not a single problem. Do you still think it's necessary to induce a discussion on board label to just keep these these elements of diversity in the board label that just go along with the consensus at this time uh okay?

SPEAKER_00 1:16:07

Uh whenever things are going right, uh there is something around the corner. Okay, so you need to anticipate what are the risks that can come along. Okay, and then uh, you know, the board is a place both for entrepreneurs to kind of step back a little bit and uh have a more uh broader view, but then other people that are not in the daily life of the company to uh provide their insights uh in terms of what they think. Okay, and you know, consensus is the an appropriate way of getting things done, okay, but it doesn't have to start and end with consensus. Okay, and so this is uh, you know, uh I had not one but several companies, in particular, uh when uh working with uh uh young entrepreneurs, where they always thought that the relationship between investor or the board and the entrepreneur is a contentious one, okay. That it's you know, me against them, uh board controlling them and all of that. And then uh you know the discussion becomes around a board composition and who has what seat and and and all of that, okay. And that typically that discussion typically uh comes from not understanding how venture-banked boards work, okay, or good ones, okay. They're collegial, okay. They're about common interests of having the company succeed, okay, and they're about confronting opinions so that they drive appropriate conclusions.

unknown 1:17:45

Okay.

SPEAKER_00 1:17:46

And so I sometimes, and I, you know, it's abstract for somebody who's never lived that, okay, for me to try to explain to them that we go into a meeting and we all want to contribute to the success of the company. That's the underlying driving force. Okay. And when you think about it that way, then it's not, you know, uh me trying to control you or anybody else. Okay. It's about a common denominator, which is success of the company, and everybody doing what they're doing with that conviction. Now they can think that one thing is better than the other, what the other person is proposing. They need to confront these uh these views, okay? But they're both, if the board is uh functioning well, well meant. Okay, and that's something that entrepreneurs sometimes don't realize that people mean well even if they don't think the same as you do.

Christian Soschner 1:18:42

Yeah, being disagreeable, disagreeable matters at the end of today, especially on both level and making people aware of uh the risks and the blind spots they don't see because of the daily hustle. When everything goes right, I mean it's it's pretty easy. Being disagreeable um when the company is working well is fun. Um, how do you handle things in in tough times? For example, I mean, when you look at pharma, it's still COVID. There was this sugar high. Uh Alastair Milton on the podcast said there was the sugar high in 2022, uh, 2021, money was flowing uh towards pharma, and then there was this crush right after we had we had the same thing in sectors like uh you know alternative protein and and so on, where you know uh exactly the same as you said, sugar high, okay, without the sugar, and then and then uh uh the the period of disillusionment. You know, how do you handle port dynamics then as an investor when things are really bad?

SPEAKER_00 1:19:41

Yeah, so uh one of the one of the conversations that's very interesting to have is to explain to uh entrepreneurs uh a not to take money when there is plenty of it, okay. And I'll come back to that point and where I will contradict myself, okay. Uh, but then also to be smart about the valuation that you get, okay, because one thing uh that uh you know founders are obsessed about is delusion, which is natural and normal, okay. Uh and so they uh think that the higher the valuation they can get, the better off they will be. At a very abstract level, that's true, okay. But there is a journey to get somewhere.

unknown 1:20:27

Okay.

SPEAKER_00 1:20:28

And so the the key journey, the key question to ask yourself is does my valuation today correspond to what typically a company at this stage of development should be valued at? Okay, and this could have a uh error bar of 50 percent plus or minus, okay, but it still has to be within reason. Uh why? Because A, there's going to be ups and downs in the market, okay. And so maybe now you're getting money at the up period. Well, the next one might be in the down period, okay? So you may get disappointed, okay. And secondly, there is something called equity story that needs to be uh coherent across the development of the company that takes five, six, seven, sometimes ten or plus years. Okay, and uh at the end of that story, you need to land at some exit valuation that makes sense comparatively speaking to everything else in typically public markets or private markets. Okay, so the moment you have a deviation from that, okay, you risk uh you know uh finding yourself in a difficult situation very quickly, okay. And then and this is self-serving, okay, the ones that typically suffer end up being investors, right? Because the team always needs to be somehow served so that they continue to be motivated, and then investors end up uh end up uh uh with a short end of that stick. And so that's why uh explaining to entrepreneurs that sometimes the bigger valuation is not necessarily always the best choice, okay? Uh is a difficult uh conversation to have, but sometimes an important one. Coming back to the point about taking money or not taking money, okay. Uh when uh companies are in the process of uh fundraising, uh it's often you know good uh to uh take as much money as they're offered because tomorrow they may regret not having the extra two million that they didn't want to take because they didn't want to get diluted. Okay, so that's one perspective. The other perspective is that at the times off sugar high as you described it, okay, there's just too much how do I say that nicely uh money that's there uh thanks to excitement without necessarily uh rational uh lens. Okay, and then it's better not to take it. Okay, so I know that my two points are you know in opposition, okay, but when you think about it rationally, you understand why I'm advocating not to take any money at you know uh uh situations of high excitement because it will come back and bite you.

Christian Soschner 1:23:12

Yeah, I yeah, definitely. So this this is exciting. I mean, um, I think it was Michael Jackson on LinkedIn. Uh it's also an investor in the UK. He wrote uh he always coins this term tourists, so the tourists in the market. When you get them on the board of a company on the cap table, it's really hard to get them out later because they invest at the high when the valuation is really high, and um, when you cannot sustain this high valuation in a down market, and you need to raise money in that, it's just set up for disappointment for people who don't understand investing and who don't understand the company at the end of the day.

SPEAKER_00 1:23:47

Uh yeah, and you know, going back to the alternative protein uh craze period, uh, I mean, we had investors in our funds asking us, why aren't you doing any of these investments? Everybody is uh you know doing this or that, you know, uh, because people want to talk about what everybody talks about. Okay, and then uh when you explain that, well, you know, the valuations are too high, the maturity of the technology is not there, the differential factors are not there, therefore we'll sit and wait. Okay, and you actually do sit and wait, and things always come to uh normal over time, and then you uh you can come in and uh make some choices.

Christian Soschner 1:24:26

It's easy said, uh be a contrarian investor. How do you explain this to your LPs that uh you don't run after the hypes, but really look at the uh at the market segments that are currently not high?

SPEAKER_00 1:24:39

You stick to your guns, uh, basically. You know, if you are consistent in your message, people will understand. They may be disappointed because you know, like I said, at the end of the day, it's about stories. Okay, so they want to be able to tell stories about what they invested in, okay. And uh, you know, they get excited by some of these stories, but you know, if you keep the discipline and you make sure that the message is always consistent, uh, it's fine.

Christian Soschner 1:25:03

I'm curious now. Last final point, a final question to the investor uh founder relationship. Where have you seen this relationship break down in a way that it's really destroyed at the end of the day? What are the big faults that people should be aware of to avoid that in the future of uh building their companies?

SPEAKER_00 1:25:28

I think it goes back to the point that I tried to make earlier that most of the time, if this relationship is healthy, the opinions are well met. So people are uh suggesting certain things because they want the company to succeed. The challenge becomes when uh entrepreneurs interpret it in a different way, okay. They think that an investor is proposing something because it serves them, okay, for whatever whatever reason. Okay, and oftentimes uh if communication breaks down and uh people go into you know what I would call their own world of uh contemplation, okay, it leads to uh negative outcomes in terms of relationships kind of breaking down, conversations not happening, and then uh disappointment by entrepreneurs thinking that you know somebody is against me or this or that without necessarily understanding where certain uh positions are are coming from. So, all that to say, and this is of course contrary to what we see out in the world, we need to have more conversations rather than less.

Christian Soschner 1:26:45

Yeah, that's a very good point. How do you motivate um founders to have um more conversations than less when they are overwhelmed already with the day-to-day work?

SPEAKER_00 1:26:54

That that that's true, and you know, the the the societal tendency is not to talk, it's to send messages now, okay? Uh or rely on other things, right? Which which doesn't really help uh uh in in many aspects, okay. This being just one uh tiny one uh at the end of the day. So it's really face-to-face conversations. Uh yeah. And you know, uh there is uh uh there are positive consequences uh of that in terms of you know uh democracies functioning, people confronting their views, uh being able to accept other people's views uh that may not be the same but still being acceptable. Whereas you know, the trend today is to is leading towards uh polarization, uh, you know, uh uh opinions that are not uh able to reconcile and so on, which is driving a lot of a lot of negative things in a society overall.

Christian Soschner 1:27:42

So you to understand your advice, right? Talk it out, don't text it out.

SPEAKER_00 1:27:47

Exactly.

Christian Soschner 1:27:48

Yeah, uh let's move to deep tech realities, which is a very old person, old person uh you know position.

SPEAKER_00 1:27:54

Okay, is it is it really? Oh well, I mean, uh uh I have uh children that are working and they tell me in horror somebody called me by phone, you know. Oh, really? Yeah, this is this is so surprising today because uh you know everything is sold through messaging, so uh yeah, that's true, that's true.

Christian Soschner 1:28:12

Yeah, but it doesn't work at the end of the day, it's just every everyone's talking to himself.

SPEAKER_00 1:28:17

Right, uh, but it's an investment as well.

Christian Soschner 1:28:19

Yeah, yeah, that's true. When we look at deep tech, I think the public markets, private markets, the last 20 years was all about software, especially with the internet. Uh, Mark Anderson with uh I think it was Netscape, his famous product was basically a software product. We have a myriad of apps, and uh, with that, whenever I read about investing, there is this 10x notion. Uh start a company, sales six months, and then in two to three years, uh, we get the 10x exit. Does it work in deep tech in the same logic?

SPEAKER_00 1:28:56

10x is still there, it takes longer time. Okay, so why is 10x uh an emblematic uh you know position that you know we get attacked about uh uh many times over? It's a uh it's a metaphor in some ways, okay? But it's an important metaphor to understand how uh venture capital uh works, and it relates also to uh to sports, uh so I'll I'll close the loop on that uh as well. Uh the the uh profile of venture capital investments is such that uh very few make a lot of money, okay, some make some money, and a large part makes zero money or loses money. And so that's why getting into an investment without a 10x mentality uh screws up your mathematics from day one. Because every single investment when you're making it needs to have a 10x potential. Knowing all the way along that journey that many will never get there, but those that do get have that potential and therefore will compensate for the losses of the ones that don't make it. And so uh looking from the outside, this looks like oh, you know, some greedy capitalists, you know, uh looking to make uh 10 times uh or hundred times uh money. Okay, but the reality is that that you know exceptional element needs to be ingrained in every single startup you back, knowing that it may not work, and so those that work need to compensate.

Christian Soschner 1:30:40

Yeah, as you need the expectation at the end of the day to leave it. I mean, the truth is venture capitalists don't invest their own money, they invest other people's money, and they need to return money at the end of the day. Otherwise, it uh doesn't work. You can't motivate your LPs uh forward. But uh, does it really work in in deep tech? Um, this this uh I mean in in practice.

SPEAKER_00 1:31:02

I understand. The the truthful answer is the jury is still out. We still have to prove that it actually uh works. It's a uh nascent field in many ways, okay. Uh and uh the timelines are long, it requires uh capital, but you know, uh, I don't know, take a company like uh NVIDIA, okay. 10 years ago, maybe you knew that your GPU in your computer was an NVIDIA chip, but many people didn't even hear about that company, okay. And then all of a sudden certain things happened in the market, and uh the company is now the most valuable company uh in the world, right? So uh, you know, uh and is it a deep tech company? Absolutely, because it's a semiconductor company, right? It's a company that uh that uh develops something in the physical world that you have to actually build and be able to design, produce, and uh and then and and and then sell. So uh in some other spaces that I've been involved with, uh, you know, we still have to prove ourselves, and this is a collective responsibility of everybody in that ecosystem. And this includes uh startups, investors, uh uh, you know, uh bigger investment uh groups that are giving money to to venture capital, but also large companies that are part of that uh that system uh uh that allow uh innovation to be uh commercialized and eventually uh create uh uh uh good outcomes for uh the startups that are successful.

Christian Soschner 1:32:30

Yeah, of the day you're building the the next game-changing company. Nvidia is a very good example. I think uh the success story came basically then overnight in 2024 um for many. But when you look at the history of NVIDIA, it was not really clear cut until 2023, 2024. Um, when they started, I mean the chips industry is basically a cyclical industry, and in the 90s it was one uh graphic cards developer came out with a new card and vanished two years after. And when you wanted to buy a replacement, it didn't exist anymore. Nvidia found a way to become sustainable in that space, and interestingly, then they pivoted completely to an area where everybody said in 2006 this CUDA platform for scientists is really when scientists don't have money at the end of the day and they're not willing to pay a lot of uh capital for graphic cards, uh gamers do, why do you pivot? And this laid the foundation, but not in 2006, almost 20 years later, to the economy we have now with artificial intelligence. My question to you is as a deep tech investor, knowing that this NVIDIA blueprint takes 10, 20, 30 years to fruition, how do you position yourself uh as a fund with that in mind?

SPEAKER_00 1:33:52

Yeah, so this is an eternal question whether deep tech funds should be longer than 10-year funds. Uh, and the answer is I don't know. The challenge is that the moment uh something is different from standard, it becomes complicated to be part of an ecosystem. Okay, so it's the same as you know when we invest alongside uh a uh an evergreen fund that doesn't need to uh get out. Well, there is already you know an asymmetry in interest in terms of creating an exit. Okay, so that's why uh this is not uh an issue where you can really make a clear clear cut what uh what should be the timeline. But then uh you know uh some of it is understanding how the overall uh market develops. And I'm sure that there are people uh that a lost money in NVIDIA, there are people that made some money in Nvidia, and then there are people that made a lot of money in Nvidia. Okay, and you know, uh at the end of the day, that's part of the of the normal cycle, and that's why uh you have uh uh companies that uh at the end of the day, you know, are successful uh in the books of some investors, but very unsuccessful in the books of others, depending partly when they bought into them, when in that development cycle or hype cycle, if you want to call it, depending on the on the on the position, okay, you came in. Okay, and that's that's part of uh of this process. Okay, so part of our responsibility when trying to uh to allocate uh capital is figuring out uh is the moment right? Is it too early or too late? Oftentimes we're too early, and you know it has to be admitted, uh, but uh you know sometimes uh you hopefully get it right.

Christian Soschner 1:35:41

Two questions come to my mind. So on one on uh Sofinova's fund model, so it's still uh traditional model, 10 years. Um, you raise funds, allocate it within two to three years, and need basically to get out of the story latest that year, 10 with a little bit of a period afterward, if you need to wind down something or if it takes a little bit more time. But it's the traditional VC model.

SPEAKER_00 1:36:02

This is how industry works.

Christian Soschner 1:36:04

Uh yeah, yeah. And if you want to follow on, you need to do it with the next fund, basically. If you say, okay, this story is really okay.

SPEAKER_00 1:36:10

So uh, I mean, this is a lot of people don't understand this. Okay, normally you make uh you make uh you form a portfolio in a three, four-year period, okay, but you keep significant reserves and you use the reserves uh to finance the companies that are successful. So the uh now it's uh a choice of the manager how they do this, how much do they invest uh uh first, and how much do they keep as reserves? But typically for deep tech, you need significant reserves for subsequent uh uh uh financing because A, it becomes more capitalistic, and sometimes it takes longer than you than you wanted. Okay, so you need to be uh uh able to play ideally uh as long as possible. Sometimes it doesn't work, okay? So uh you find yourself without enough capital, even though the company still needs to uh raise money, so that can be uh killing your position, uh, or uh if you manage to uh keep enough capital, then you can continue following on. But uh that's that's kind of the model.

Christian Soschner 1:37:11

But from coming from the company side, for the entrepreneurs who listen to this episode, uh it still means when I want to present the deep tech case to you, uh, you would be very happy when I can explain the story in a way that is said, look, I mean, when we close the funding round in the next 12 months with you on board, um, I believe that with the money raised, I can achieve a milestone in four to five years down the road that has a good potential to deliver a 10x exit for you at this point. So this would be a story that would uh make you happy as an investor.

SPEAKER_00 1:37:45

Very happy. Okay, so this is really uh because you know from from that story, you need to discount many things, okay? And the the the two things you discount is time takes longer, and the return is not as good as as uh you know as what the entrepreneur uh wants you to believe.

Christian Soschner 1:38:04

But uh still when quantum computers, for example, uh quantum computers, um where some say it might take 10-20 years until something comes out of uh nuclear food fusion until it's uh has commercial viability. Um it's really hard to even if it's the best technology and has so much commercial potential in 20 years down the road, it's hard to fit in your funding model like yours at the end of the day when they say it's 20 years. So there must be something before that.

SPEAKER_00 1:38:35

It's true. Okay, there are some things that are just uh not appropriate for venture capital, and we just have to accept, right? So I happen to know a fusion company that I've looked at in 200 and uh two. Uh, it took them until this year to uh get the liquidity event.

Christian Soschner 1:38:56

That's 24 years. Yeah, 24 years. 24 years, really patient, really patient. Um, but in it utility chance, probably it would be off your list at the end of the day because when you charge and say, okay, 10 years we need to return something.

SPEAKER_00 1:39:12

Yes, but now uh this is uh this brings us to a very important topic that uh we didn't talk about, which is uh what is uh well how to create exits, okay, and what is the appropriate time to get to those exits, okay. And this is where the deep tech world is still very much handicapped, okay, because we talked about uh you know uh building uh from science to technology, uh then uh demonstrating that at scale, uh, producing, uh commercializing and all that. Uh, this is a long road to hope, but uh the ones waiting at the end of that road, okay, are expecting a startup to uh go through all these steps. That's not necessarily the case in other sectors where uh rarely do you go to you know uh serious uh production facilities or anything like that. You're often acquired much sooner. And so what we are in a way uh missing is that ability to create exit points uh earlier in that journey that would then fit uh much easier with the venture model and in a way uh give a kick to that flywheel that would then you know uh help uh people understand that yes, this is demanded by the market, and uh it's going to create new companies because people understand how to how to get uh uh down that road. Why aren't we seeing this? Okay, today in deep tech, we are not seeing large companies buying startups. It's not it's not uh common, right? Uh you see that in biopharma, you see that in uh software. Uh I mean back in the 90s, we talked about 90s. Uh Cisco had a whole department uh buying a startup every week, okay, that was you know printing business cards, integrating, doing everything. Uh none of these companies that do that expect every single startup they acquire to work 100%. So they almost have a venture capital model inside their way of thinking. But again, they understand that I'm not going to say what the number is, one out of five will work dearly for them. Okay, and uh that's good enough for this model to work. The challenge in the deep tech world is uh risk appetite or ability to accept risk and ability to defend situations that don't work. Why? Because at the end of the day, it should be a portfolio approach, right? You uh have a set of technology gaps, or you expect certain markets to grow where you're not present, and you want to complement that through acquisitions of startups and new technologies. Well, you do that, and then you know, some work, some don't work, but the ones that work bring you so much upside that they compensate for uh the ones that didn't know, exactly the same as the math in terms of venture capital. Okay, to get to that level, you need to have uh management teams that are able to defend a position where some will not work, okay, and that's okay. Which is, you know, if you go to pharma world, that's totally fine. Like nobody is going to uh uh to question uh leadership of a pharma company that made some acquisitions and some didn't work, right? It's just part of life, okay. Uh in in deep tech, that's much different, okay. And so you need to have that acceptance at you know, uh board and shareholder level so that that uh atmosphere then transcends down to uh MA activity that picks up and therefore creates a marketplace for these new technologies.

Christian Soschner 1:43:04

I thought for companies of a certain size, especially public companies in all industries, it's common sense to first when they when they realize they have a strategic gap to first look on the market, acquire something integrated before building it yourself. And now you now I hear from you um it's not common in deep tech industries. Why why is that? What is your opinion?

SPEAKER_00 1:43:24

That's a billion-dollar question. You know, if I had the answer, I I I would not be uh I was hoping I would be here, but I would be I would be uh you know charging for my answer. But uh no, I think I think there are a couple of challenges. Okay, first of all, uh if we go back to the to the name, it's deep tech, therefore, it's fundamentally built on strong science, and many of these companies have internal RD departments, right? And so uh there is a challenge, uh, I would say with not invented here, right? There is a challenge of accepting that somebody, which is similar to not invented here, that somebody outside might have done something better, okay, and we should actually accept it. And then there is a risk, and this is a real risk. We're talking people again, okay, that uh you know a company uh needs to question whether internal development is actually the right thing to do. Okay, and uh I think it's wrong to question that because there is room for internal RD, okay, and there's a room to complement that with uh external RD through acquisitions that together one plus one gives five. Okay, uh, but that's the you know human nature uh that uh that uh comes in the way in a way, because uh you know decisions are never made rational, they're made because of somebody's interest. Okay, and so when you think about that, that's a that's a very challenging, uh challenging uh position for a deep tech top company, uh company to have. Then uh we have to face the reality, companies that are operating in these spaces they don't have the uh market multiples that, for example, biopharma has, right? So their currency in the market is not as strong, okay, which doesn't mean that they shouldn't play, but they just need to play differently. Okay, and that part, uh, I suppose I don't have an answer. Uh leadership teams have not invested sufficient time to figure out what's the right game plan there and how do you actually play, because if you don't play, you don't win. Okay, and so you need to figure out how to play in the startup world so that it's beneficial to you and at the same time feeds this environment so that you continue to grow.

Christian Soschner 1:45:40

So at the end of the day, you invest in deep tech in an area that has a very long runway, anyway. So it's uh uh more than 10 years with limited exit windows. Um, because some parts of the industries have not yet today, today, today. Then there is the human human element again on the on the LP side. I can imagine how do you how do you keep your own conviction, the conviction of LPs up, that this will change in the near-term future?

SPEAKER_00 1:46:09

It's not easy, okay. Uh, it requires uh uh conviction that uh you know you're doing the right thing and you're showing positive examples along the way. To date, the reality is that a lot of positive examples are typically related to uh public markets, so listing companies in public markets, which is not a wrong thing to do, right? But typically it should not be the majority of uh of uh liquidity uh uh outcomes. Uh this position got me in trouble once I was uh I was speaking on a panel in China and uh it was being translated. Uh and I said IPOs are in the eyes of VCs a necessary evil. Okay, and then I said that and the whole room was whoa, yeah, I have no idea how it was translated uh to them. Okay, but you know that that position still remains true because uh an MA context is a known environment, right? Uh IPO listing is uh uh something where there is a lockup period, you don't know how the markets will react, you don't know how the company will behave in public markets, so it's a lottery ticket. Okay, it can go well, okay, but it can also go better.

Christian Soschner 1:47:22

Yeah, and then you always have this uh this interesting development that many companies are overvalued before the IPO on the private markets and the bright AI, for example. I mean, uh Open AI and uh uh Anthropic, they now bright themselves with uh extremely high valuations, yeah. But the only exit window they have really open now is uh is is the IPO market at the end of the day, because like for that everything else is prohibited, right?

SPEAKER_00 1:47:46

I mean this goes this goes back to our discussion uh uh some time ago around you know uh how uh chasing the valuation basically closes uh some of the doors for for companies, right? I mean in in the AI case it's extreme, right? But it's it's equally true in uh in other sectors depending on the valuation.

Christian Soschner 1:48:04

But let's dwell a little bit on this point, um IPO and why the room in China was who why why is IPO such a negative thing for VCs? Um coming from from MA way back in the in the early 2000s. Um there is one observation that I had that uh when a company prepares for an IPO, um very often, in my personal opinion, um the roadshow, the the publicity connected to it, and all this this this uh uh uh energy that uh is set free on the market when trying to hook up investors for the IPO uh also steers up very often incumbents, uh the big companies and makes them curious about what happens when they come to the market. So, what I personally think have observed on the market is that many acquisitions happen around IPO. So company prepares for an IPO, a bigger company gets steered up and thinks it could be a competitor, would it be much nicer to acquire it before they go public, to not risk have another one eating our cake? Um, I'm surprised that the US of VC uh say IPO is not my favorite route to go. Why why is that?

SPEAKER_00 1:49:15

No, okay, this is a general statement because it is a step uh into unclear future. Okay, and the the key elements are what's called the lockup period. So just to explain for people that don't know, okay, uh typically uh uh uh uh the shares that are registered for public offering cannot be traded for six months. Okay, and then after six months, the lockup period expires and they can be traded. So uh the consequence of that is that A uh six months is a very long period, okay, as we see all the time. Okay, many things can happen. So things can happen in the business of the company that you don't necessarily control. Okay, so therefore the stock can react positively or negatively, okay. Then things can happen in the overall environment, geopolitical or whatever the case might be, that can again affect how uh this uh stock performs. Okay, and so I know that you know, for people it's seducing to talk about you know companies that did an IBO and all of that. But when you have an MA transaction, you sign an agreement and the cash is in the bank the next day, okay, and it's not moving anywhere. Uh so uh from uh from a predictability point of view, that's a much safer uh uh outcome than uh exposing yourself to public markets, which could be you know uh lucrative, far from that, okay. Uh but come with certain risks.

Christian Soschner 1:50:45

Um, let me sum it up in a hopefully funny way. And uh if I understand you're right, the top of a VC is investing in early stage technology and teams that have a high risk and uncertainty that they will produce anything useful someday in the future. Um, the likelihood of them failing um is higher than of them succeeding, and you manage it over uh building a portfolio, but at the end of the day, it's really high risk, high uncertainty. This is where VCs Thrive accept the exit. Uh the RVCs prefer the certainty of an acquisition compared to the uncertainty of the stock market.

SPEAKER_00 1:51:24

Yeah, you can you can you can you can think of it that way. Uh why? Probably because it remains in the private realm, right? Because uh uh we are much more attuned to operating in private transactions uh than figuring out how.

Christian Soschner 1:51:42

How uh uh markets will uh uh react and uh uh think about that's the point, it's a different game, it's not basketball anymore, it's probably scuba diving, so it's completely a different game. It's uh the skills that you acquired can you cannot use in another game. Absolutely. Uh yeah, this makes sense. This makes sense. How um how does an acquisition work for a VC? Um, what's your point? When do you get out of the process?

SPEAKER_00 1:52:10

Oh, you're part of that process all the time. I mean, uh, in many ways, you know, by networking, you are uh informing acquirers that there is a startup that's at this point in time, uh, you know, and it's probably ready that the companies should talk to them. Then you are uh trying to, you know, again, market the story, right? And then eventually you are part of the discussion uh on the terms and everything else that uh that sets up uh the agreements.

Christian Soschner 1:52:40

So to sum this part up before we move forward to to to uh rant a little bit about Europe uh and circle back to the beginning of the conversation before we wrap it up. Um so for the entrepreneurs, it means um presenting a development risk is fine. Uh presenting a commercial risk, uh a team risk, uh having gaps in the in the in the org chart, it's absolutely fine in investor buys in it into it. But uh to really get you on board with the storytelling early in the conversations, it would be helpful if they have some ideas how they can create an exit wide acquisition route, uh, for example, have already the contact, have a perceive a need in the industry, understand how the industry works, rather than uh promoting an IPO um as their preferred exit route.

SPEAKER_00 1:53:26

Uh yeah, it's easy to say we'll exit through an IPO, that's for sure.

Christian Soschner 1:53:31

Yeah. Because at the end of the day, Christoph Langauer said it in an earlier podcast. We talked in 2021, he said uh you cannot sell a company, companies are acquired. So final question to this acquisition party is how do you make it happen if you can't sell a company?

SPEAKER_00 1:53:49

Uh well, it's about being sufficiently null and creating this uh you know uh uh need uh for somebody to actually say, Well, I don't want others uh to have their hand in this. And come back again partly to communication.

Christian Soschner 1:54:06

Yeah, communication and storytelling. So these are really the key the key skills, otherwise. How when we when we come come to Europe now, I mean you know the United States, you know Canada, you know Europe, uh you operate in both ecosystems, you also know China. Um, where do you see Europe's strengths and weaknesses for entrepreneurs and venture capitalists?

SPEAKER_00 1:54:30

So uh Europe has a phenomenal uh RD base. Uh both uh university uh and uh uh public uh institutes uh constitute uh a an incredible uh position to build on. Uh I would also say, and this is from personal experience, that the new generations of uh uh entrepreneurs uh or people with uh strong technical background have an inclination stronger than before to become entrepreneurs. They need to be helped. They need to be helped in a way by creating uh uh conditions uh that we see uh you know actively or proactively being done in many different uh countries, but also on the European level, both uh legislative and in terms of availability of financing. So these conditions are there and are helpful today uh to see a thriving scene in deep tech, in particular, uh, in many different places, uh, in early stages. Okay, so a lot of uh companies get started, which is good because that creates a lot of learning. And we can come back to that. Uh uh learning is very important, even if you don't succeed, you learn a lot. Okay, uh, and this is one of the challenges uh uh of Europe, which is that the mindset of failure is not necessarily uh okay, embraced is not a f the the the appropriate word because there's no reason to celebrate failure, okay? But it's about rationally understanding what have you learned from an experience, and then how do you uh use that to become better next time? And this is where sports is a phenomenal analogy because if you spend days crying over a lost match, you better quit and stop doing that any further. Okay, you have to figure out why did you lose the previous match, what can you do better, and then you go and hopefully win the next one, okay? And that's how uh you uh perpetuate your success or you know end up on the 52% side as Roger Federer and not uh below 50 uh 50 50. And so that's that's uh one of the one of the challenges uh in Europe. The other challenge in Europe is uh as companies uh grow, and in particular when they need uh significant amounts of capital in deep tech for deployment, uh this is where uh you know uh there are fewer sources of funding. There is a significant effort now being put in place, uh spearheaded by uh a number of financial institutions and uh European investment bank that is hopefully coming to close uh sometime this month for a big uh uh multi-billion euro scale-up fund. So uh if that's in place, uh that's a good uh first step towards uh uh making sure that there is a scale-up capital available in Europe. But you know, uh solution is not just single fund. Okay, there needs to be uh uh uh abundance of uh scale-up capital that allows these companies to reach maturity and ideally not run somewhere else uh to do their industrialization, but remain in Europe.

Christian Soschner 1:57:45

Why do you think it is important for Europe to keep the companies here for the industrialization phase and not let them just wander off to the United States and say, okay, we uh brought them through um kindergarten and now let them walk into the next stage in the United States?

SPEAKER_00 1:58:04

Two answers, okay? Uh because you will capture more value, otherwise we become a museum. And uh, I don't think we want to be a museum.

Christian Soschner 1:58:14

Yeah, so so the the way that they then move to the United States and come back later with their products is not uh satisfying for you.

SPEAKER_00 1:58:22

Oh, okay. Uh I don't know. Uh where do you uh make that uh cutoff? But let's say the company develops something and moves to a different geography, then uh we will have, I don't know, uh 100 million in value. I'm I'm inventing numbers, right? When they commercialize and start bringing 100 million in profits per year, this is uh way more value at the end at the end of the story, right? Because at each new step, the value creation increases, right? And so if we are only, and I will push the envelope, the factory of uh uh ideas or maybe RD, okay, that doesn't pay as much as actually being uh uh somebody who is able to bring it to the end and commercialize.

Christian Soschner 1:59:09

I totally agree to what you say. I mean, when I'm on an executive board, I do really not care if we move to the United States or say in Europe at the end of the day, I have to go by the capital flow center where I can grow the company, uh, because the survival of the company, the growth of the company is my my my my real goal.

SPEAKER_00 1:59:24

That's a fiduciary responsibility, right?

Christian Soschner 1:59:26

Yeah, yeah. But but from a taxpayer perspective, I completely agree to what you say because when I look at Europe across the board, we invest a lot of tax money in at university level, spin it out in startups, invest a lot of tax money, taxpayers' money in the startup world. And then from an operator perspective, I always see the gap from series A onwards. I mean, I can't finance a company, a deep tech company or biopharma company very well in Europe post-Series A, even with this new fund initiative. I think it's there's not enough capital on the market. How can we change that in Europe? That uh especially for this value creating phase series B, series C, series D, up to IPO acquisition, that we have a breeding ground for scale-ups.

SPEAKER_00 2:00:10

So one unresolved challenge, and I don't have a recipe for success, is uh we still have uh fractionalized uh capital markets. Okay. If I push to the extreme, every single country wants to have a stock market. Okay, so by definition, okay, uh the bigger the country, the bigger the stock market, but a small country will then have a small stock market, okay, which doesn't mean it's dysfunctional, okay, but it doesn't create a critical mass of many things that are important for success. And what are those things? Okay, first of all, it's large pools of capital that can actually support ambitious stories. Second, it's knowledgeable people behind those pools of capital that can put their finger on something that they think is the future, therefore, very deep understanding of a particular topic. If you are operating in a small market, you don't have the luxury of developing uh expertise in every single vertical. So you are a generalist, okay? And so we don't want to be a collection of generalists, we want to have a uh ideally single capital market with many experts on different uh topics that could be in different places, but therefore we know that uh I don't know, uh it's not specific to this story, okay. Luxury goods expertise is in France and it's okay. So we don't need to develop that in Copenhagen, okay? Copenhagen will have you know industrial biotech expertise thanks to success of Nova Zeimes, Christian Hansen, and so on. Okay, nobody is today, okay. Uh so all of these things are very important for our ability of the continent that has a huge common market to succeed uh together because otherwise we continue in a way competing between different countries instead of embracing this ability to have a common market and function as one entity in the capital markets.

Christian Soschner 2:02:20

Yeah, I totally agree. And how can we motivate policymakers that they create the right environment for private companies actually to finally invest in in scale up?

SPEAKER_00 2:02:31

This is not my expertise, okay. Yeah, so I'll preface anything I say that it's not it's not my expertise. I think the job of the government is to create conditions, it's not necessarily to intervene uh in in the markets. However, okay, I say that, but I follow with the following statement. Okay, it could be the job of the government to catalyze certain markets because they bring a better future to the common uh market. So uh that uh is something that's high responsibility in the sense that it asks from somebody to make choices, okay. And uh typically uh you know policymakers are much uh more comfortable spreading the wealth uh uh in a in a very uh uh uh even uh manner rather than making that being cold later on when something doesn't work. Okay, so today, what is it? Almost 20 years later, okay. Everybody talks about you know uh uh uh American uh solar company that got I think 500 million loan uh secured by Obama government, okay, and went bust. Okay, but nobody talks about uh 25 other companies that took a loan, uh uh returned the loan and created significant value through equity investment uh to the government, because that's life, okay? Uh unfortunately in the political world. So at some point, uh, you know, we have to live with our, we as a society, with our choices and support them and stick to them. Okay. One of the biggest challenges overall is uh different cycles that influence certain decisions, be it, you know, on in the commercial world, a quarterly cycle of reporting for public companies. In the political world, an election cycle, where you know people are not comfortable uh making long-term commitments uh beyond uh uh an election cycle. And therefore, that shortens our ability to stick to some long-term positions that we see working well in some other places.

Christian Soschner 2:04:37

What I find so fascinating when I look at Europe um now in my early 50s, and um when I think back to the 90s, I always had the feeling Europe is winning and um at least at bar with the United States. So my indicators were automotive industry um in the 90s, 80s, 90s, uh especially the German industry, also the French industry or uh Scandinavian industry, Italy. Uh EXO is, for example, uh one of the public holding companies that still comes from Fiat from the Italian company. Um, when I think about the mobile industry, in my opinion, the mobile revolution started in Europe, or Europe was one of the biggest contributors. The worldwide web um was invented in Switzerland, and I think the decision by the CERN Institute to put it in the public domain and not sell it via a startup or demand everybody to get a license, created the success stories of Amazon and Alphabet and made the internet as we know it today possible. Uh, Europe was strong. And for some reason, um, that I still don't fully understand, especially Silicon Valley in the United States, they also are a democracy, they also have this uh boom and bust cycles, they also have these democratic cycles of uh four or five years elections. Um Silicon Valley took off while Europe, after especially after the crash in 2000, really stifled almost every innovative uh industry and could not catch up with the depression after the big stock market crash in 2000. Uh, did you find some explanation why the US overcame this this big disaster in 2000 so fast? I mean, fast the Nasdaq took 15 years to make up from the 2000 high. Uh, it was until 2015 that we saw a new all-time high in the Nasdaq. But what's your explanation? What's your interpretation that Europe uh seems to be still a little bit stuck uh from this 2000 crash?

SPEAKER_00 2:06:42

I I think goes back to mentality, okay. And the the the mentality, if you if you single out uh the the US, uh, is we talked a little bit about uh embracing failure for lack of a better word, okay. Uh, but understanding how learnings from past failures can you know bring uh success. Okay, but the key difference between US and Europe is new world versus old world. Okay, new world is by definition, pick your period, it doesn't matter, a pioneering effort. Okay, people go and are still attracted to going to the new world so that they can realize their dreams because the environment is such that it helps them drive their uh ambitions. Okay, uh we are in Europe much more uh uh cautious. Uh and when you look at uh you know uh recent uh economic uh uh success, uh what's the most uh successful country in the last 20 years in Europe? Poland, right? Because it allowed uh people after you know many years of uh uh you know uh tough life uh to actually uh express themselves through entrepreneurship, and a lot of things uh took off uh in in Poland uh today to become a very successful big economy uh in Europe uh that's you know uh unprecedented success.

Christian Soschner 2:08:09

Yeah, no, absolutely. And then the contradiction is still is China in my eyes. So when I traveled to China in 2014, it was already in 2014, it was such a huge difference from what I remembered from school from the late 80s, early 90s, and what I saw. I mean, especially in the big cities in in Beijing or Shenzhen, um, was really looking to the future. Now it's uh even more impressive. Um, you also experienced China. What's what's your interpretation? But uh what makes China closer to the United States when it comes to the development speed uh than Europe?

SPEAKER_00 2:08:47

Uh I mean it's fascinating what happened to China, okay. And uh I don't I'm not uh skilled enough to have a a comprehensive answer of how that worked, okay. But what is interesting is that uh, and to your point, the the uh the speed of development is even faster there, okay, because uh there is a uh uh a notion that you need to try different things, right? And if they work, they'll take off relatively relatively quickly. Okay, and that uh uh helps feed of itself this mentality of entrepreneurship, right? Where you know people see, you know, the the the the joke in the deep tech world is that if you see your colleague professor driving a Ferrari, well that's probably because they succeeded in a startup, okay, not because they were good uh researchers, right? And so you know uh when you see role models and uh facility to start new businesses with technology and bring them to scale uh with the help of the environment, and the environment there is helpful, and you know, I have no expertise to dissect how that uh you know uh help uh from different levels of government uh you know works out in China, but the end results is people taking initiative and quickly failing or quickly succeeding to get on to the next one, okay. And that creates uh a very engaging uh environment that uh infects uh, you know, for lack of a better word, others with the entrepreneurial uh spirit or virus.

Christian Soschner 2:10:25

Yeah, we need to activate it a little bit more in Europe and also talk about failure. Uh, I like your points about Roger Federer. So, I mean, uh 52 to 48, I think uh you mentioned was his uh success criteria that he didn't win everything, every point. But uh it was a very, very fine line. And looking at the startup word through that lens, it makes it obvious that the startup has a chance of success of less than 10% and 90% failure chance, and we should be a little bit more gracious to that. When you look at your career, um, are there also investment decisions where you say um your initial instinct was not right? How did you deal with that that situation when you have to realize it doesn't work?

SPEAKER_00 2:11:05

Well, many did not work, okay? And many will not work in the future, okay? Uh it's uh uh I mean uh we started talking about you know scientists working in uh in venture capital and all of that. It's uh it's a difficult situation to find yourself in where you invest many years of hard work and support uh for uh some of these uh uh companies that then uh don't work out. Okay, and then you know we have to define what not working out uh means here. We talked about the option where these companies continue their journey and you have to divest for a number of reasons. In some other cases, they basically shut down, okay. And uh it's in human nature to kind of uh uh try to think about these moments as uh not successful ones. But I think a better way to look at it is what can we learn from those lessons and how do we ideally avoid uh these mistakes uh in the future. Okay, uh again, this is not easy, far from that, because in addition to you know financial loss, which is an important one, there are people involved, right? And there are uh people that tomorrow uh don't have a job or you know, uh company shuts down, and so all of these things, all of these things are are related uh and uh create a uh situation that's not easy to to live with, uh, but uh VCs are somehow vaccinated, if I can say so, uh better against uh those situations and uh hopefully come out of that on the other end uh with continued uh enthusiasm and optimism about the ones uh that survive. I see uh occasionally uh colleagues that come from other uh uh parts of life, uh in you know uh different uh uh boards and so on, who uh live those moments uh with a little bit more difficulty. Okay, and I can uh I can associate with that, I can appreciate with that. Uh, it doesn't mean that uh I've developed uh thick skin, it's more that I've developed an ability to uh kind of uh appreciate the learnings that come and kind of move on, uh move on from there. But uh it's it's never easy.

Christian Soschner 2:13:36

I think what you mentioned is one of the biggest success principles of successful companies. Um, my opinion, reach. Hastings in his book, No Rules, Rules, uh, described it best with sunshine and failure at Netflix. But also, when you look into the leadership style of Jens Nuang uh at Nvidia, uh also in Amazon, I think this is one of the principles to sunshine failure, talk about it, uh, reason with people, what did you learn, and uh also help other people to avoid these failures? And um I completely agree we should keep that. Uh, we're coming to the end of our conversation. I have a handful of questions left. Um, first question to you is uh is there anything open that you would like to talk about before we prop it up?

SPEAKER_00 2:14:17

So I think we we we went over a lot of a lot of different different topics, touched uh upon you know uh this whole uh uh venture capital uh world, then uh relationship with entrepreneurs, and also uh how uh hopefully we can turbocharge Europe's future because I think uh there is a collective responsibility there. And uh uh, you know, going back to if you don't play, you don't win. I think uh one needs to understand is that by getting involved, you are actually contributing to the end result by sitting on the sidelines or in the audience, uh you're just a passive observer. Okay, and that goes for many other uh things uh we do in life. Okay, so if there is if there is one message is you know uh get going and get involved rather than you know uh complaining from the sidelines, you know, uh, which is uh you know a uh a sport that some people are you know like to uh to practice.

Christian Soschner 2:15:16

Yeah, completely agree. Then my final three questions, it's uh it's more uh uh intuitive, intuitive round. If you could implant one principle into the mind of every European founder to make Europe more successful, what would that principle be? Do not be afraid. And the same for investors in Europe.

SPEAKER_00 2:15:43

Maybe this, I mean, almost the same message, right? Uh do not be afraid to go on the limp, uh, because uh most likely uh you will get rewarded.

Christian Soschner 2:15:55

And final question for the audience six months from now, if someone remembers only one sentence from this conversation, what should that sentence be?

SPEAKER_00 2:16:05

So I would use a verse from uh an Austrian poet, uh Rainer Maria Rilke, and that in my language says the following uh in a loose English translation, it would be I live in circles that continue to expand. I may not reach the final one, but I'm trying hard.

Christian Soschner 2:16:34

That's a very good quote to for this conversation and to remember. Joshko, thank you very much for this conversation. I enjoyed every minute of it and learned a lot of new things. And I wish you and your family and your teammates of Finoba all the best for the future.

SPEAKER_00 2:16:48

Likewise, thank you very much for the opportunity and for insightful uh questions and uh conversation.

Christian Soschner 2:16:54

Have a great day. See you soon. Bye-bye. Three ideas from this conversation with Josh Kopanovic keep coming back to me. The first one: venture capital works against instinct. You back your most talented and you let go of what will not work without positioning it, and you accept that most bets fail, so the rare ones pay for the rest. Second, an investment is a marriage with a divorce written in from the one, which means the people matter more than the pitch. Third, patience is not passive. Europe has the science and the entrepreneurs. What it still needs is the capital and the nerve to scale companies here rather than watch them leave. If any of that gave you something to think about, the simplest way to help is to like this episode, leave a comment with the idea that reached you, and share it with one person who builds or backs hard technology. That is what helps the show grow and brings more conversations like this one to you. Follow the show, and I will see you in the next episode.